Square Wants a Bigger Bite of This $800 Billion Industry

About 20% of Square's (NYSE: SQ) gross payment volume already comes from food-related businesses like coffee shops, food trucks, and quick-serve restaurants. But Square wants to move into more full-service restaurants, which make up a significant portion of the $799 billion U.S. restaurant industry.

That's why it's launching Square for Restaurants, a suite of tools to help manage table layouts, menus, customer orders, splitting tips, employees, and online ordering, among other things. It's just the latest service in Square's growing subscription and services segment, which grew 98% year over year in the first quarter.

Continue Reading Below

Square's business is heavily reliant on building an ecosystem of tools that all work seamlessly together. Payment processing is the one thing that ties all of Square's services together, but the ecosystem is what keeps merchants from switching.

Serving up a big opportunity

Square sees developing management tools as a path to bringing on more merchants. It's already developed Square for Retail, which includes retail-specific features like inventory and customer relationship management. It created Appointments to attract more service merchants like those in the health and beauty industry. With Square for Restaurants, it aims to tackle the next big vertical.

Square previously partnered with TouchBistro to provide a payments solution for restaurants using the digital point-of-sale system. The new Square for Restaurants service aims to completely replace TouchBistro's functionality while providing deeper integration with Square payments and Caviar, Square's online ordering service. The fully integrated service should provide a better way for Square to acquire new customers and retain them than its partnership with TouchBistro.

Restaurants rang up around $800 billion in sales in 2017. But Square's gross payment volume with food businesses was around $13 billion last year. That leaves a lot of room for a company like Square to grow in the industry.

Advertisement

Building an omnichannel solution

Square CEO Jack Dorsey says omnichannel -- integrating in-store and online sales to reach customers wherever they are -- is its top priority for 2018. That means a big focus on Caviar, the food delivery app the company bought about four years ago.

Square has been investing a lot in Caviar to grow the number of restaurants on the platform and increase customer engagement. It started offering pickup in addition to delivery last year, to give customers more flexibility. Square for Restaurants provides another avenue to onboard more restaurants to Caviar and help improve sales.

Caviar is already one of the top three contributors to Square's subscriptions and services segment. As a natural complement to Square for Restaurants, Square stands to see a significant benefit to the high-margin segment, which could enable the company to maintain its rapid growth into 2019.

Getting customers to take multiple products

Square for Restaurants represents just another way for Square to onboard merchants to its payments platform. As a dashboard for managing the business, Square for Restaurants provides a very high-touch place where Square can market its other services to restaurant managers and owners. Services like payroll, loyalty, marketing, and capital could make it easier for managers to improve the business and grow sales.

Getting customers to take more than one product is key to Square's strategy in 2018. Square sees its ecosystem of tools and services as its competitive advantage against other payments processors in an industry with relatively low barriers to entry. During an investors conference in March, CFO Sarah Friar noted the company is investing in products that encourage merchants to use multiple services. Square for Restaurants is a perfect example of that.

10 stocks we like better than SquareWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Square wasn't one of them! That's right -- they think these 10 stocks are even better buys.